Prosperity or security? When the choices become tough

China and Asia have so far been an unmitigated good news story for Australia but there are dilemmas ahead for Australia and, by extrapolation, for New Zealand.

This was the message from Dr Michael Wesley, executive director of the Lowy Institute for International Policy in Sydney, who spoke at a recent Asia:NZ presentation hosted by PricewaterhouseCoopers in Auckland. He was in New Zealand as a guest of Asia:NZ to address several high profile forums on the Antipodes and the rise of China.

Photo: Dr Michael Wesley (left) with PwC partner Colum Rice at the Auckland business leaders talk

Dr Wesley said that Australia is now on the cusp of a change in its national conversation about what its economic integration with Asia means: and talk about Asia is really a story about China. He said that he “did not want to be alarmist” but the series of dilemmas represent three very difficult policy choices.

The first set of dilemmas is posed by China amassing serious leverage as it develops into the central growth dynamo of the regional and global economy. The Australian economy has decoupled from the fortunes of America and Europe and coupled up to the fortunes of China.

“No-one in Australia has any illusions that if the Chinese economy falls over so does ours.”

The centring of the regional economy on China has created a remarkable concentration of economic links for every economy in the region: including the New Zealand economy.

“China, in all of its dynamism, has managed to do something incredible in the last 20 years. It has managed to move the global terms of trade against itself. It has pushed up the price of commodities and pushed down the price of manufactures…. All of this is worsened by the chronic undervaluation of the Chinese currency.”

The Chinese economy faces some very great problems which are increasingly being written about in the Chinese and international press.

“While it’s been doing that, China has done another remarkable thing. Just over 20 years ago, the Tiananmen Square massacre occurred and China arguably was the most internationally isolated it had been since the communist revolution. In 20 years, China has not only managed to silence the critics of China – or most of them at least – but it has made every single country in its region realise it has a stake in China’s success.

“If Tiananmen Square happened again tomorrow I wonder how many regional countries would be lining up to isolate China. For that matter, I wonder how many non-regional countries would be lining up to isolate China.

“I wonder how many people would seriously be against the People’s Armed Police going in and sorting things out. That’s how much of an investment we have in China’s continuing success.”

A bifurcation of national security and prosperity interests poses the second set of dilemmas.

Countries including Australia, New Zealand, Japan, South Korea, Taiwan, Singapore, the Philippines and Thailand now have China as one of their trading partners – if not as their major one. At the same time, they have China’s great strategic competitor, the US, as their main security partner.

Photo: Dr Wesley with Paul Gillard, GM Corporate, Tenon

This “very new world” stands in sharp contrast to the old “comfortable” world in which Australia had its main ally – or at least its “ally’s ally” – as its major trading partner. Dr Wesley said the bifurcation of security and prosperity interests presents a difficult set of circumstances.

“I’m not saying there will be a decision point any time in the future. In fact, most countries in the region would rather not think about this.” But time for such a decision “could, and probably will, come”.

“One of the things helping us at the moment is that I don’t think the Chinese quite understand how to exercise power in a world of such interdependence; and for that matter, neither do we. No-one can quite understand how, in a world that has grown as interdependent as ours, to exercise the power within that world without harming yourself.”

A third set of dilemmas centres on the Chinese economic boom which is exerting such gravitational force on Australia’s economy that Australian policy makers must start to make policy choices on what to do about it.

These choices must be based on a bet on how China will perform in the future.

“Is China going to continue to boom? How long for? How long will it require Australian commodities and what will it need after Australian commodities? After China stops building cities, will India start? And after India, will it be other countries in the region?

“The Government needs to start making policy around this. And yet it is very difficult to predict with any confidence what’s going to be happening in the Chinese, Indian or other Asian economies over time.”

Asia:NZ is grateful to PricewaterhouseCoopers for hosting this event. Dr Wesley will publish a book titled “There goes the Neighbourhood: Australia and the rise of Asia”  in early May 2011.

- by Ruth Le Pla

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Last updated: 02 December 2011